- Higher-than-expected US jobless claims numbers raised concerns about the US labor market.
- On Friday, markets will be watching Non-Farm Payrolls, the unemployment rate and average hourly earnings.
- The odds of a rate cut in June remain high.
He US Dollar Index (DXY) It fell slightly on Thursday and is currently trading around 104 points. Mainly driven by weak weekly initial jobless claims numbers. The focus is on Friday's Nonfarm Payrolls, where investors will get a clearer picture of the labor market.
The US labor market remains resilient despite the weak numbers, as does the economy in general, with few signs of slowing down. If the economy does not show conclusive signs of cooling, the Fed could consider delaying the start of the interest rate relaxation cycle.
Daily summary of market movements: DXY extends losses on poor labor market numbers
- Weekly jobless claims in the US reached 221,000 in the week ending March 30.
- Claims topped estimates of 214,000 and surpassed the previous week's figure of 212,000.
- Following the slowdown in the US services sector, the Federal Reserve remains cautious but does not rule out three cuts in 2024.
- US Treasury yields show a slight rise, with the 2, 5 and 10 year bonds at 4.68%, 4.34% and 4.36%, respectively.
- Investors are awaiting key US labor market data, such as March Non-Farm Payrolls, the unemployment rate and average hourly earnings.
- These reports will have a crucial impact on the US Dollar as they will shape expectations for the upcoming Fed meetings.
DXY Technical Analysis: DXY shows mixed signals with timid bear pullback
The indicators on the daily chart reflect a duel between bulls and bears. The Relative Strength Index (RSI) is on a negative slope but in positive territory, suggesting that the buying momentum is losing strength. However, it has not completely disappeared yet.
The Moving Average Convergence Divergence (MACD) shows decreasing green bars, implying the possibility of a bearish reversal, but it has yet to cross into negative territory for the sell signal to be credible.
Despite these bearish signals, the pair sits comfortably above its 20,100 and 200-day SMAs, indicating that the underlying trend remains bull-friendly.
US Dollar FAQ
What is the US Dollar?
The United States Dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions.
After World War II, the USD took over from the pound sterling as the world's reserve currency.
How do the decisions of the Federal Reserve affect the Dollar?
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
What is Quantitative Easing and how does it influence the Dollar?
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of interest rates is unlikely to achieve the necessary result. It was the Fed's weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
What is quantitative tightening and how does it influence the US dollar?
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
